Bill Leone, the lead prosecutor in the criminal insider-trading case against former Qwest chief executive Joe Nacchio, said Thursday he is withdrawing from the case and returning to private practice.

Leone’s departure deals a blow to the government’s case against Nacchio and further shuffles a prosecution team that also lost a key attorney in June, experts said.

Leone joined the U.S. attorney’s office five years ago and has served as the acting U.S. attorney in Colorado since December 2004. He has spearheaded the government’s investigation into the alleged fraud at Denver- based Qwest since 2002.

With Colorado’s incoming U.S. Attorney Troy Eid expected to take office soon, Leone said Thursday he would not see the case through.

“I would like to return to private practice as soon as that’s possible,” Leone said in an interview. “I have agreed with both the department and the new U.S. attorney to remain involved in the case as long as is necessary to make sure that the case is well-handled and smoothly transitioned to someone else.”

Eid was unavailable for comment Thursday, but he issued a statement.

“I respect Bill’s decision to return to private life – and his commitment to serve on the Qwest prosecution team as long as necessary to ensure an effective transition,” Eid said.

In December, Nacchio was charged in federal court in Denver with 42 counts of illegal insider trading related to the sale of $100.8 million in Qwest stock in early 2001. At the time, he allegedly knew the company’s finances were faltering.

Nacchio, who was forced out of Qwest in June 2002, has pleaded not guilty.

Leone’s co-lead prosecutor, Michael Koenig, left the case two months ago to join a private law firm in Washington, D.C. Koenig had worked on the case since March 2004.

“Any time you have two lead prosecutors leave the case, it’s devastating,” said Anthony Ac cetta, a former federal prosecutor. “The new people are behind the eight ball, but that’s not to say that they can’t win the case.”

Since Koenig’s departure, two new attorneys have joined the team – Leo Wise and Colleen Conry. Wise is an up-and-coming trial attorney who helped prosecute the case against former Enron leaders Ken Lay and Jeff Skilling. Both were convicted.

Conry, also a trial attorney based at the Justice Department in Washington, D.C., helped prosecute the fraud case against former HealthSouth CEO Richard Scrushy, who was acquitted.

Koenig, speaking from his office in Washington on Thursday, said his departure had nothing to do with the Nacchio case and gave high marks to Conry.

“She is an excellent attorney and a top-rate person,” said Koenig, now with Dewey Ballantine LLP. “There are not enough good things I can say about Colleen Conry personally and professionally.”

The Justice Department hasn’t finalized a trial team.

Experts said replacing Leone will be tough.

“He clearly has a lot of information about the investigation and has a huge amount of knowledge,” former federal prosecutor Tony Leffert said. “It is uncommon to replace the trial team in a high-profile case where there’s been a long extensive investigation.”

The Nacchio case involves 13 million pages of documents, and will likely involve claims by Nacchio that national security issues played a role in his decisionmaking. Former high-level Qwest executives Robin Szeliga and Afshin Mohebbi are expected to be key witnesses.

“One of the big problems with (Leone leaving) is cooperating witnesses have a rapport with the prosecutors they dealt with,” said former federal prosecutor William Mitchelson. “Whoever replaces (Leone) will have to establish that relationship. That’s not always an automatic thing.”

A trial date hasn’t been set.

Nacchio’s attorneys have requested that the trial not start any earlier than June 2007 and have asked for a change of venue to Nacchio’s home state of New Jersey. A federal judge is expected to rule by month’s end on where the case will be tried.

Nacchio is represented by Herbert Stern, a respected former federal judge who served in New Jersey from 1974 to 1987. Stern didn’t return a call seeking comment.

Leone, who led a largely unsuccessful fraud prosecution of four former Qwest executives in 2004, said he probably would have stayed with Justice had he been appointed U.S. attorney.

“I’ve got still three kids to get through college.” he said. “I’ve devoted five years to the office. The case is in good shape.”